Labour variance – Knowsia

MA – L2- Q29 – Standard Costing and Variance Analysis

Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.

Question

KLM Enterprises Ltd. uses a standard costing system. The following profit statement summarises the performance of the company for August 20X3:

	GH¢	GH¢
Budgeted profit		3,500
Favourable variance:
Material price	16,000
Labour efficiency	11,040	27,040
Adverse variance:
Fixed overheads expenditure	(16,000)
Material usage	(6,000)
Labour rate	(7,520)	(29,520)
Actual profit		1,020

The following information is also available:

Standard material price per unit (GH¢): 4.0
Actual material price per unit (GH¢): 3.9
Standard wage rate per hour (GH¢): 6.0
Standard wage hours per unit: 10
Actual wages (GH¢): 308,480
Actual fixed overheads (GH¢): 316,000
Fixed overheads absorption rate: 100% of direct wages

Required:
(a) Calculate the following from the given data:
(i) Budgeted output in units
(ii) Actual number of units purchased
(iii) Actual units produced
(iv) Actual hours worked
(v) Actual wage rate per hour
(b) State any two possible causes of favourable material price variance, unfavourable material usage variance, favourable labour efficiency variance, and unfavourable labour rate variance.

Answer

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Tags: Budgeted Output, Cost Calculations, Labour variance, Material variance, Performance Analysis, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2- Q28 – Standard Costing and Variance Analysis

Calculate sales, material, and labour variances for Zest Foods Ltd. and prepare an operating statement reconciling budgeted to actual gross profit.

Question

Zest Foods Ltd., a premium food manufacturer operating out of Tamale, is reviewing operations for a three-month period of 20X8. The company operates a standard marginal costing system and manufactures one product, ZP, for which the following standard revenue and cost data per unit of product is available:

Selling price	GH¢ 12.00
Direct material A	2.5 kg at GH¢ 1.70 per kg
Direct material B	1.5 kg at GH¢ 1.20 per kg
Direct labour	0.45 hrs at GH¢ 6.00 per hour

Fixed production overheads for the three-month period were expected to be GH¢ 62,500.

Actual data for the three-month period was as follows:

Sales and production: 48,000 units of ZP were produced and sold for GH¢ 580,800
Direct material A: 121,951 kg were used at a cost of GH¢ 200,000
Direct material B: 67,200 kg were used at a cost of GH¢ 84,000
Direct labour: Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of GH¢ 117,120
Fixed production overheads: GH¢ 64,000

Budgeted sales for the three-month period were 50,000 units of Product ZP.

Required:
(a) Calculate the following variances:
(i) Sales volume contribution and sales price variances;
(ii) Price, mix, and yield variances for each material;
(iii) Labour rate, labour efficiency, and idle time variances.
(b) Prepare an operating statement that reconciles budgeted gross profit to actual gross profit with each variance clearly shown.

Answer

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Tags: Labour variance, Marginal Costing, Material variance, Operating Statement, Sales variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q26 – Standard Costing and Variance Analysis

Calculate standard cost sheet for Product AB using given actual costs and variances to determine standard costs and rates.

Question

Standard marginal production cost – Product AB


Direct materials	(8 kilos at GH¢1.50 per kilo)
Direct labour	(2 hours at GH¢4 per hour)
Variable production overhead	(2 hours at GH¢1 per hour)
Standard marginal production cost

Tutorial note: This problem tests your understanding of the formulae for calculating variances. Here, you are given the actual costs and the variances, and have to work back to calculate the standard cost. The answer can be found by filling in the balancing figures for each variance calculation.

Workings
Materials price variance
150,000 kilos of materials did cost
Material price variance
150,000 kilos of materials should cost
(The variance is favourable, so the materials did cost less to buy than they should have cost.)

Materials usage variance
Materials usage variance in GH¢ = GH¢9,000 (A)
Standard price for materials = GH¢1.50
Materials usage variance in kilograms = 9,000 / 1.50 = 6,000 kilos (A) kilos
18,000 units of the product did use
Material usage variance in kilos
18,000 units of the product should use

Required:
Calculate the standard cost sheet for Product AB, including:

Standard price for materials.
Standard quantity of materials per unit.
Standard time per unit for labour.
Variable production overhead rate per hour.

Answer

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Tags: Labour variance, Marginal Costing, Material Price Variance, Material Usage Variance, Overhead variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

Question

Tarkwa Industries uses a standard absorption costing system. Standard data per unit of Product Z is as follows:

	GH₵ per unit	GH₵ per unit
Standard sales price		6.00
Direct labour cost	0.64
Direct material cost	3.00
Variable production overheads	0.16
		3.80
Contribution		2.20
Fixed overheads		0.20
Profit		2.00

The budgeted production and sales volume for Product Z was 12,000 units. Budget for 2,400 direct labour hours (12,000 units):

5 units to be produced per hour
Standard labour cost is GH₵3.20 per hour
Standard material cost is GH₵1.50 per kilogram and each unit requires 2 kilos
Budgeted fixed overheads GH₵2,400
Budgeted variable overhead cost per direct labour hour = GH₵0.80.

Actual results for the same period:

11,500 units were manufactured
2,320 direct labour hours were worked, and cost GH₵7,540
25,000 kilos of direct material were purchased (and used) at a cost of GH₵1.48 per kilogram.

Other information:

Inventory is valued at standard cost of production.
Actual variable overheads were GH₵1,750
Actual fixed overheads were GH₵2,462
10,000 units were sold for GH₵62,600.

Required:
Prepare operating statements for the period using:
(a) standard absorption costing.
To prepare the absorption costing operating statement, you should show the variable overhead expenditure and efficiency variances, and the fixed overhead expenditure and volume variances.

(b) standard marginal costing.

Answer

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Tags: Absorption costing, Budgeting, Labour variance, Material variance, Operating Statement, Overhead variance, Performance Analysis, Sales variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q21 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for Tarkwa Manufacturing Ltd. for Period 1 using standard absorption costing.

Question

Tarkwa Manufacturing Ltd., based in Kumasi, uses a standard absorption costing system in accounting for its production costs.
The standard cost of a unit of product is as follows:

	Standard quantity	Standard price/rate (GH₵)	Standard cost (GH₵)
Direct materials	5 kilos	6.00	30.00
Direct labour	20 hours	4.00	80.00
Variable production overhead	20 hours	0.20	4.00
Fixed production overhead	20 hours	5.00	100.00

The following data relates to Period 1:
Budgeted output: 25,000 units
Actual output – produced: 20,000 units
Units sold: 15,000 units
Materials put into production: 120,000 kilos
Materials purchased: 200,000 kilos
Direct labour hours paid: 500,000 hrs

Due to a power failure, 10,000 hours were lost.
Cost of materials used (120,000 kg): GH₵825,000
Rate per direct labour hour: GH₵5
Variable production overhead: GH₵70,000
Fixed production overhead: GH₵2,100,000

Required:
Calculate, for Period 1:

The material price variance
The material usage variance
The direct labour rate variance
The direct labour idle time variance
The direct labour efficiency variance
The variable overhead total cost variance
The fixed overhead expenditure variance
The fixed overhead volume variance
The total manufacturing cost variance

Answer

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Tags: Absorption costing, Idle time, Labour variance, Manufacturing costs, Material variance, Overhead variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q20 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for South-East Enterprises' product EAGLE using standard costing data for July 20X8.

Question

The following data were extracted from South-East Enterprises’ records for July 20X8 in respect of product EAGLE:

Standard cost/unit


Raw material (50kg @ GH₵5 per kg)	250
Labour (2 hours @ GH₵60 per hour)	120

Budget
Production: 2,000 Units
Fixed overheads: GH₵1,500,000
Variable overheads: GH₵1,800,000
Labour hours: 4,000
Standard hours of production: 4,000

Actual
Production: 2,400 Units
Direct material purchased: 110,000 kg @ GH₵605,000
Opening inventory direct material: 1,000 kg
Closing inventory direct material: 4,000 kg
Wages paid (4,900 hours): GH₵318,500
Fixed overhead: GH₵1,650,000
Variable overhead: GH₵2,280,000

Required:
Compute the following variances:
(a) Material price variance
(b) Material usage variance
(c) Labour rate variance
(d) Labour efficiency variance
(e) Variable overhead expenditure variance
(f) Variable overhead efficiency variance
(g) Fixed overhead efficiency variance

Answer

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Tags: Absorption costing, Labour variance, Manufacturing costs, Material variance, Overhead variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q17- Standard costing and variance analysis

Reconcile actual and budgeted profit using variances for GreenLeaf Organics under marginal costing.

Question

GreenLeaf Organics, based near Tamale, makes a product – the EcoShield Spray. It is an organic alternative to chemical sprays.
For the forthcoming period, budgeted fixed costs were GH₵6,000, and budgeted production and sales were 1,300 units.
The EcoShield Spray has the following standard cost:

	GH₵
Selling price	50
Materials 5 kg × GH₵4/kg	20
Labour 3 hrs × GH₵4/hr	12
Variable overheads 3 hrs × GH₵3/hr	9

Actual results for the period were as follows:
1,100 units were made and sold, earning revenue of GH₵57,200.
6,600 kg of materials were bought at a cost of GH₵29,700, but only 6,300 kg were used.
3,600 hours of labour were paid for at a cost of GH₵14,220. The total cost for variable overheads was GH₵11,700, and fixed costs were GH₵4,000.
The company uses marginal costing and values all inventory at standard cost.

Required:
(a) Produce a statement reconciling actual and budgeted profit using appropriate variances.

(b) Assuming now that the company uses absorption costing, recalculate the fixed production overhead variances.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Labour variance, Marginal Costing, Material variance, Overhead variance, Profit reconciliation, Sales variance, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

Tag (SQ): Labour variance

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MA – L2- Q29 – Standard Costing and Variance Analysis

Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.

MA – L2- Q28 – Standard Costing and Variance Analysis

Calculate sales, material, and labour variances for Zest Foods Ltd. and prepare an operating statement reconciling budgeted to actual gross profit.

MA – L2 – Q26 – Standard Costing and Variance Analysis

Calculate standard cost sheet for Product AB using given actual costs and variances to determine standard costs and rates.

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

MA – L2 – Q21 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for Tarkwa Manufacturing Ltd. for Period 1 using standard absorption costing.

MA – L2 – Q20 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for South-East Enterprises' product EAGLE using standard costing data for July 20X8.

MA – L2 – Q17- Standard costing and variance analysis

Reconcile actual and budgeted profit using variances for GreenLeaf Organics under marginal costing.

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MA – L2- Q29 – Standard Costing and Variance Analysis

Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.

You're reporting an error for "MA – L2- Q29 – Standard Costing and Variance Analysis"

MA – L2- Q28 – Standard Costing and Variance Analysis

Calculate sales, material, and labour variances for Zest Foods Ltd. and prepare an operating statement reconciling budgeted to actual gross profit.

You're reporting an error for "MA – L2- Q28 – Standard Costing and Variance Analysis"

MA – L2 – Q26 – Standard Costing and Variance Analysis

Calculate standard cost sheet for Product AB using given actual costs and variances to determine standard costs and rates.

You're reporting an error for "MA – L2 – Q26 – Standard Costing and Variance Analysis"

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

You're reporting an error for "MA – L2 – Q22 – Standard Costing and Variance Analysis"

MA – L2 – Q21 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for Tarkwa Manufacturing Ltd. for Period 1 using standard absorption costing.

You're reporting an error for "MA – L2 – Q21 – Standard costing and variance analysis"

MA – L2 – Q20 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for South-East Enterprises' product EAGLE using standard costing data for July 20X8.

You're reporting an error for "MA – L2 – Q20 – Standard costing and variance analysis"

MA – L2 – Q17- Standard costing and variance analysis

Reconcile actual and budgeted profit using variances for GreenLeaf Organics under marginal costing.

You're reporting an error for "MA – L2 – Q17- Standard costing and variance analysis"

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